The demand for platinum comes from three distinct industries. The main user is the auto industry which includes the electronics industry, jewellery manufacturers and investors. During the economic cycle, this diverse group of buyers provides the Platinum market with numerous checks and balances that help to regulate supply and demand. An example is how the demand from the jewellery industry acts as a swing factor. Total demand peaked at 8.3 million ounces in 2007 and demand dropped to 6.8 million ounces by 2009 which is a decrease of 18%. Jewellery demand climbed 33%, while industrial demand dropped 44% during this period.
In 2010, as a the economy was recovering, platinum jewellery demand fell nearly 14 percent and industrial demand rose by about 45 percent. The consequence of lower platinum prices was that platinum investment demand picked up by about 290 percent in 2010. Around the same time platinum-based exchange traded funds (ETFs) came into the market giving investors even further exposure to the platinum market. However, in 2011, platinum investment demand slowed down as prices went through the roof.
2011 was a rocky year for platinum demand. The economic recovery from 2010 followed through into 2011 and in the early months of 2011 platinum demand looked great and platinum prices gradually rose. Unfortunately the Japanese earthquake and tsunami hit platinum demand right in the head. Japan is one of the major players in the auto parts and electronics manufacturing sector. An event like a Tsunami really hampers any production in the region, and rightly so. The tsunami resulted in a severe shortage of auto parts which caused fewer production vehicles. As a result, platinum prices fell from $1860 an ounce in early 2011 to $1665 an ounce by June.
Japan’s auto and parts industries had a quicker than expected recovery which led to a rebound in demand that saw prices rise to $1,916 an ounce in August. The economic outlook started to deteriorate as debt problems in Europe and sluggish economic data in the western world started to raise concerns about slower growth.
The platinum demand outlook for the rest of 2011 looks sluggish as harder economic times hit us. At the time of reporting, platinum prices were around $1600 an ounce. Given the fall in platinum prices, investors are actively reducing their exposure to platinum ahead of harder economic conditions. Another issue at hand is the slowing Chinese platinum jewellery demand especially since China is the largest consumer of platinum jewellery.
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